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"A Short Covering Rally" - Mauldin's column last week containing comments from market participants regarding the new SEC rules as well as some examples of previous attempts at market meddling by agencies. A very good read I highly recommend:
A Short Covering Rally
John Mauldin's Outside the Box
by John Mauldin
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How do you spell short-selling rally, gentle reader? In this week's Outside the Box we look at several short items (pardon the pun) from various sources, which paint a not pretty picture. The first hit my inbox this morning from Art Cashin (of CNBC fame and also Head Floor Trader for UBS).
"Deconstructing The Rally – The sharp rally that sprang from the new short sale restrictions has been spiky and, in several ways, very powerful. The impact of the short rule change was evident. As Barron's notes, the 150 stocks with the heaviest short interest rallied a stunning 15%. The stocks with the smallest short positions rose only 2%. That may be a function of existing shorts scrambling to cover to pass the new, belated, scrutiny. That thesis got added weight from a couple of areas. The Merrill Lynch results got mostly panned by several analysts and TV pundits. Nonetheless, the stock closed 24% above its lows for the week. Also, the financial sector ETF rose nearly 25% from the lows.
"All of the above suggests that the rally is based on the two pronged government move. First, put a safety net under the financials, especially Fannie and Freddie. Second, restrict opportunities to sell the financials short. We'll wait to see if those efforts have further legs this week."
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Then let's look at this column written today about, among other things, past attempts at messing with the short rules. In short, it just doesn't work for very long. This is a Taking Stock column by Spencer Jakab for the Dow Jones Newswire.
The Mother Of All Short Squeezes May End Badly
By SPENCER JAKAB
In the words of the notorious 19th century speculator Daniel Drew: "He who sells what isn't his'n must buy it back or go to pris'n."
The rules governing short selling -- borrowing shares to bet on price declines -- are vastly more stringent than they were in the era of robber barons like Drew, Jay Gould and Jim Fisk, but one thing hasn't changed much: When markets decline, those who profit are seen as un-American, even evil, and the weight of the authorities is brought down against them with devastating, but usually temporary, results.
That pattern may be playing out now after Securities and Exchange Commission Chairman Christopher Cox shocked the market by announcing at a Banking Committee hearing Tuesday vague new emergency restrictions against "naked short selling" to begin four trading days later. Though almost none of the 19 financial firms targeted were on Reg SHO lists in place since 2005 that highlight firms with failures to deliver borrowed shares, his comments had explosive results after many of them had hit multiyear lows.
Fannie Mae (FNM) and Freddie Mac (FRE), which also received additional credit lines, each rallied by over 96% from Tuesday's intraday low through Friday's close while major firms with no government safety net like Bank of America Corp. (BAC) and Lehman Brothers Holdings Inc. (LEH) surged 49% and 59%, respectively, with some troubled regional lenders like Huntington Bancshares Inc. (HBAN) doing even better.
What does it all mean? Asked just hours after Cox's testimony, one dedicated short hedge fund manager had a sarcastic reply: "This means the financial crisis is over," he said, going on to clarify that nothing at all had changed fundamentally in his opinion. Of course many shorts like him suffered stinging losses and reduced capital, but the other side of the coin is that there are now far more shares to borrow at much higher prices than a few days ago. Financial stocks may well retrace at least part of their recent gains as the shock of Cox's step wears off.
Past Examples Not Encouraging
The fact that the initial results were spectacular, particularly for financial stocks, shouldn't be too encouraging. Consider what happened in April 1932, at the depth of the worst-ever bear market. Upon the announcement of a cumbersome new rule that required written permission from each shareholder before a broker lent out his stock, the Dow Jones Industrials rallied 3.51%. By the time the rules were instituted weeks later, the short covering was over and the slump had resumed.
More recently, attempts by authorities in the U.K. to force disclosure of short positions in financial firms undergoing capital raising have had mixed results as mortgage lenders Bradford & Bingley PLC (BB.LN) and HBOS PLC (HBOS.LN) traded near the prices of deeply discounted rights offerings. Nudgem Richyal, a fund manager at JO Hambro in London, said some secretive hedge funds pulled back in order not to leave themselves open to a short squeeze or bad publicity.
"The last thing you want is your name splashed all over the FT," he said.
An extreme example comes from Pakistan where the local SEC responded to a stock slump last month by banning short selling and limiting daily price declines to 1% while allowing them to rise by 10%. The initial reaction was a massive 8.6% one day rally followed by 15 straight days of slumping prices amid extremely low turnover, the worst such period for that market in several years. As rioting investors stormed the Karachi Stock Exchange last week, the rules were rescinded.
Shorts Help In Price Discovery
Aside from such extreme examples, a lack of price discovery because shorting is banned can sometimes hurt the most vulnerable investors. For example, when Palm Inc. (PALM) had its initial public offering in early March 2000, the initial pricing range was $14-$16 a share, reflecting bubble era valuation sensibilities, but the deal was so hot that it was issued at $38 and traded as high as $165 the first day as retail investors bought and those well-connected enough to get IPO stock sold. Since most of the equity was still owned by 3Com Corp. (COMS), the subsidiary was worth $54 billion and the parent at $28 billion. As a result, 3Com's other businesses were briefly worth negative $60.78 a share according to Spinoff Advisors LLC, making a short sale or put buying of Palm a no-brainer but prohibitively expensive with such a small float.
Needless to say, many saw only the price and were sucked in at or near the top, losing over 99% on a split-adjusted basis if they still held it today. There is no record of the SEC warning these retail investors of their folly. Intervention is popular only in bear markets.
And what about the view that short sellers target and destroy otherwise healthy companies? Ignoring the possibility that banks could be hurt by illegal false rumors, it is hard to understand how the operations of most businesses can be affected by the simple act of selling their stock while legitimately borrowing it. Legendary hedge fund manager Michael Steinhardt weighed in on this subject last week.
"If one looks back and finds those stocks that have been picked upon by shorts, that have been the subject of all this sort of talk, and find out what ultimately occurs to the price of those shares, overwhelmingly, one will find that the shorts were right," he said in comments to CNBC.
Is it possible though that Cox's actions, however unnecessary, marked the ultimate bottom for banks? They do seem cheap by historical measures, but the widespread euphoria last week looks more like a bear market rally than classic capitulation.
Investment strategist Barry Ritholtz wrote in his blog that one reason to doubt that the bottom is in for bank stocks is that The New York Times, The Wall Street Journal and Barron's (the latter two sharing an owner with this newswire) all produced prominent articles on Saturday suggesting the worst was over for financial stocks.
"Can you recall the last time three major media players all picked the bottom in a market or sector on the exact same day -- and were all proven correct?" he asked.
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And now let's look at a few paragraphs from Bill King's daily epistle which is really The WSJ: SEC Short-Sale Rule Gets Negative Reviews In a letter to Mr. Cox, the American Bankers Association, a trade group that represents the interests of 8,500 banks, said it fears short sellers will now focus on banks not covered by the new rules, many of which are already big targets of short sellers... [Sorry guys, you're not covered under the Crony Capitalism Act!]
On Friday, the SEC said market makers wouldn't have to pre-borrow the stock, but they would still need to deliver it within three days. [This is the heart of last week's rally. ‘Fails to deliver' have been endemic for years.] http://online.wsj.com/article/SB121642263809866665.html?mod=hpp_us_whats_newsAnds
And this rather pointed editorial from the Economist (also courtesy of Bill King):
The Economist: Bear markets often involve bare-knuckle fights, but it is still a shock when the referee starts punching below the belt. The Securities and Exchange Commission (SEC) has intervened in the epic struggle between financial companies and the hedge funds that are short-selling their shares...The SEC's moves deserve scrutiny. Investment banks must have a dizzying influence over the regulator to win special protection from short-selling, particularly as they act as prime brokers for almost all short-sellers...
The SEC's initiatives are asymmetric. It has not investigated whether bullish investors and executives talked bank share prices up in the good times. Application is also inconsistent. The S&P500 companies with the biggest rises in short positions relative to their free floats in recent weeks include Sears, a retailer, and General Motors, a carmaker. Like the Treasury and the Federal Reserve, the SEC is improvising in order to try to protect banks. But when the dust settles, the incoherence of taking a wild swing may become clear for all to see. http://www.economist.com/finance/displaystory.cfm?story_id=11751227
John Mauldin thought: Deciding to actually enforce a rule already on the book is not going to make the profit picture at banks and other companies any better. They are still going to be shorted as soon as the dust clears. This just gives them (mostly banks) more room to fall. As noted two weeks ago, there may be as much as $1 trillion still to be written off by banks, brokers, insurance companies, pension funds and sovereign wealth funds. This is going to be ugly for at least a year. Those hoping for a bottom should look for it when the quarterly bleeding stops. Bill Gross said today that for Fannie and Freddie to raise capital it will need the help of the government. My side bet is that this will not be good for equity holders of Fannie and Freddie.
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And finally, let's look at one last piece from Cumberland Advisors about the debacle at IndyMac. This may cost the FDIC as much as $8 billion. How many other problems are lurking like this? Remember, Indy Mac was not even on the watch list for their regulator a few months ago.David Kotok and his team at Cumberland Advisors are a great source of this type of detailed analysis. This piece was written by Bob Eisenbeis, who is Cumberland's Chief Monetary Economist. Prior to joining Cumberland Advisors he was the Executive Vice President and Director of Research at the Federal Reserve Bank of Atlanta. Bob is presently a member of the U.S. Shadow Financial Regulatory Committee and the Financial Economist Roundtable. His bio is found at www.cumber.com.
IndyMac: Who is to Blame for What?
Last Monday witnessed the reopening of IndyMac under the management and receivership authority of the Federal Deposit Insurance Corporation (FDIC). Photos of lines formed by anxious depositors appeared in numerous news accounts and triggered widespread concern about the safety of depositor funds.
IndyMac's regulator, the Office of Thrift Supervision (OTS), closed the institution on Friday, July 11 and turned it over, as the law requires, to the FDIC to act as receiver and insurer of deposits. The FDIC's preliminary estimates are that the failure will cost it somewhere between $4 and $8 billion. This is despite the requirements in the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) that regulators intervene and attempt to minimize losses to the insurance fund. In fact, the theory behind FDICIA intends that an intuition should be closed before its net worth goes to zero, so that creditors can be repaid without loss to the FDIC or taxpayers.
The statement that the OTS released announcing the failure indicated that it had been concerned about IndyMac's "precarious financial condition" as early as November of 2007. The institution had modified its business plan and sought to raise additional capital. Furthermore, additional steps had been taken following OTS examination of the institution in January of 2008, to return it to financial health.
The press release intimates that these plans and efforts were frustrated by the leaking of a letter from Senator Schumer to the OTS, questioning IndyMac's financial viability, which triggered a deposit run and caused the demise of the institution. Clearly, Senator Schumer's actions seem reckless. Had his remarks been uttered by a private citizen and not protected by the legal immunity accorded to our federal legislators, that person might have been subject to prosecution, if the claims proved to be false. That said, it seems the OTS's responses were equally reprehensible and self-serving.
As in most highly charged events, the facts have mostly gotten left behind, so it would pay to restate them and to delve into why the losses are likely to be so large.
IndyMac was a hybrid savings institution spun off from the now defunct Countrywide, that specialized in the origination, servicing, and securitization of Alt-A (low-documentation) mortgage loans. It grew very rapidly, doubling in size between March 2005 and December 2007 from $16.8 billion to $32.5 billion. Its funding in rough order of importance consisted primarily of Federal Home Loan Bank (FHLB) advances and insured and uninsured deposits. The advances were a particularly important source of funding, accounting for between 32% to 45% of its total liabilities.
IndyMac's reported capital declined over the period from its peak of $2.7 billion in June of 2007 to $1.8 billion at the end of March 2008. Uninsured deposits began to run off in mid-2007, long before Senator Schumer's letter. In fact, the bank actively replaced slight declines in FHLB advances and a drop in uninsured deposits with insured deposits, and particularly with fully insured brokered deposits under $100K. At about the same time, the bank's stock price began to plummet, dropping from a high of about $35 per share in June to about $3 just prior to the Schumer letter. Additionally, earnings also turned negative in the fall of 2007. These factors all pointed to a very troubled institution whose situation was continuing to worsen.
Despite the OTS examination in January and subsequent actions by the institution to change its strategy, its capital position continued to decline and earnings deteriorated. In the face of this, OTS director John M. Reich maintained that IndyMac was adequately capitalized and the institution touted that fact in its SEC filing. In fact, in the bank's March 31, 2008 10Q it stated that tangible and Tier 1 core capital stood at 5.74%, well above the regulatory requirements for the bank to be classified as well-capitalized. Risk-Based Tier 1 capital was 9% and Total Risk-Based capital was at 10.26%. Given that it was supposedly adequately capitalized and was done in by a liquidity problem as some $1.3 billion of deposits ran off, it stretches credibility that the bank's failure would lead the FDIC to estimate that it could stand to lose between $4 and $8 billion.
How could losses of this magnitude accumulate in just a matter of a few days due to a supposed run of $1.3 billion? The answer, of course, is that they didn't.
The bank was likely to have been deeply economically insolvent, which was masked by faulty accounting according to current rules and regulatory standards. Clearly, the bank's active bidding for brokered deposits and reliance upon funding from the FHLB amounted to a big gamble – financed by other government entities – that it might weather the storm. Keep in mind that IndyMac had, at closing, about $10.1 billion in FHLB advances and perhaps even Federal Reserve discount window borrowings as well. Any such borrowings would be over-collateralized with high-quality assets – in this case the collateral was largely mortgage-backed securities. Such claims stand ahead of insured deposits or the FDIC in the liquidation. This means that much of the best collateral that could have been used to backstop the FDIC or shared to reduce losses to uninsured claimants was instead siphoned off by other agencies. Indeed, the FDIC initial estimates are that uninsured depositors may receive fifty cents on the dollar of uninsured deposits.
What emerges from even a partially informed and quick analysis of the available evidence and data is the suggestion that (a) the institution was in deep trouble long before it was closed; (b) the OTS appeared to be late to the party, despite market signals; (c) OTS actions were ineffective when measured against the intent of FDICIA; and (d) the institution engaged in moral hazard behavior by pumping up its brokered deposits that were 100% insured and borrowing from the FHLB, and possibly the Federal Reserve. The bottom line is that the FDIC is left to clean up the mess and the costs associated with regulatory ineptitude, and the moral hazard behavior will be paid for collectively by the banking system through higher FDIC premiums on the surviving banks.
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All the King's Horses and All the King's Men. It all just makes you shake your head and sigh.
Your wondering what they will do next analyst,
John Mauldin
Financial
The Whiners
Liz Moyer, 07.23.08, 6:20 PM ET
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Here's shocking news: Hedge fund operators that do a lot of short-selling are complaining to the Securities and Exchange Commission that recently imposed restrictions are making it tough to do business.
Are we surprised? The SEC put in a rule last week requiring short-sellers to secure borrowed shares before shorting them, preventing "naked" short-selling, in which a trader doesn't necessarily have the shares in hand to borrow. Such shorting can add extra downward pressure on a stock, since without being forced to borrow the shares first, traders can short a limitless amount of stock.
Following complaints from Wall Street trading firms and stock and option exchanges, the SEC caved and made an exception for market makers, who are now back doing business as usual. Others have urged that the rule should be extended to all stocks. The SEC's Web site has more than three dozen comments so far on its new policy, mostly from individual investors.
Now, no less than James Chanos, founder of short-selling hedge fund Kynikos Associates, is pleading with the SEC to end the order July 29 and not extend its reach beyond the 19 major financial companies.
In a letter dated Monday, Chanos says the order has made it "more difficult, expensive and risky to sell short."
He's joined in the whining by fellow hedge fund industry promoter Richard Baker of the Managed Funds Association. He complains that the difficulties that gave rise to the rules "are the result of poor fundamental conditions and not a mysterious conspiracy or, more to the point, the inadequacy of current rules related to short-selling."
Maybe they're just mad they can't short Fannie Mae (nyse: FNM - news - people ), Freddie Mac (nyse: FRE - news - people ) or the other targets that have become fashionable with short-sellers, including Lehman Brothers (nyse: LEH - news - people ). Shares of the broker-dealers and the mortgage financing giants have been rising this week.
Meanwhile, short sales in shares of Fannie and Freddie have fallen 90% since the order was put in place Monday, according to S3 Matching Technologies, an Austin, Texas-based company that processes brokerage trades. Sales in the 17 other major broker-dealers covered by the SEC's emergency order have fallen a combined 70%.
"There's no doubt the SEC has put a rule in place that has drastically reduced short-selling," says Jack Holt, chief executive of S3.
Big banks not covered in the order continue to be short-sale targets, in some cases so much so that they show up on lists the stock exchanges keep of stocks that are so heavily shorted they wind up with big trade delivery failures. Stocks on these lists include National City (nyse: NCC - news - people ) and Wachovia (nyse: WB - news - people ), two big regional banks with a lot of mortgage-related problems, as well as boutique advisory firms Greenhill & Co. (nyse: GHL - news - people ) and KBW (nyse: KBW - news - people ).
Hedge funds aren't market makers, so they don't benefit from the exemption that registered market makers enjoy (that would include Wall Street brokerages). Which must be making them all the more restless for the order to lift.
So sad.
Mechanics of Naked Shorting
The following is from Senator Bob Bennett. This speech was made a year ago when Bennet said, "I understand we can't set a time for [a hearing] right now; there are too many other things going on in the Banking Committee." I wonder how busy they are this year because of fraud. More busy or less busy?
How to Ping-Pong Shares
But I have discovered something that appears to be a way around the SEC rules. Here is the transaction: Broker A shorts 1,000 shares. At the end of 13 days, which is the period he has to produce the shares, he has been unable to find any--probably hasn't even looked--but he has this requirement under the SEC rule to produce 1,000 shares. So he goes to broker B and says quietly, “Sell me a thousand shares.” Broker B says, “I don't have any.” Broker A says, “It doesn't matter; sell me a thousand shares so I can cover.” Broker B, “All right. I will sell you a thousand shares so you can cover and there will be no passage of money; this is a deal between the two of us--a rollover.” At the end of 13 days, broker B has to deliver a thousand shares, so broker A sells the same 1,000 phantom shares back to broker B, and they ping-pong these back and forth for as long as they want.
The one thing that convinced me this was real was when the investment bankers sat me down in front of a screen and showed me the stock trading of a company that has been out of business for 3 years, and the stock trades regularly, every 13 days. You know exactly what they are doing.
The brokers are rolling the stock back and forth every 13 days, so they are meeting the SEC requirements--they are delivering--but the shares they are delivering to each other back and forth do not exist. The company was driven out of business by the short sellers who made it impossible for them to go to the capital markets.
So you can have a situation where people are selling shares that don't exist, taking commissions on the sale, and the profits of the sale, and never, ever having to produce the shares.
Possible Solutions (Bennett)
First, I think there should be a rule which says there cannot be borrowing, that brokers cannot borrow for short sales more stock than is on deposit with the DTCC. I think that is obvious. If there are 3 million shares of XYZ Company on deposit at the DTCC, people should not be able to short sell 4 million shares.
So my first recommendation would be that the DTCC cannot make available as loans for short sellers more stock than they have on deposit. Once they have reached the point that 100 percent of the shares they have on deposit have been loaned out, they can't loan out any more. I think that is an obvious commonsense recommendation, but it doesn't apply now.
Secondly, I think there ought to be a rule which says a broker cannot be paid a commission on a short sale until the shares are delivered. Back to the business model. The broker sells $5,000 worth of stock. He can do it every day. He can get $5,000 every day, without ever having to cover the stock, and he gets a commission on making the sale. So if you say, no, there will be no commissions paid until the stock is delivered, you will have a significant impact on stopping this activity.
We Owe It To Them
As I said in my opening remarks, this is a tiny matter. It does not involve very many people, but to the people who are involved, it, frankly, can be a matter of life and death. There are enough of them starting businesses and creating entrepreneurial activity in the United States that we owe it to them to find out exactly what is going on with respect to this activity.
Sources:
Senator Bennett Discusses Naked Short Selling on the Senate Floor
July 20, 2007
http://bennett.senate.gov/press/media/naked072007.mp3
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4kids
all jmo
cramer on cox
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An outlook on the SEC and restoring the uptick rule, with Mad Money host Jim Cramer.
http://www.cnbc.com/id/15840232?video=799620804&play=1
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4kids
all jmo
interesting read ..
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Location: Blogs Bob O'Brien's Sanity Check Blog
Posted by: bobo 7/21/2008 3:29 AM
UPDATE 7/25: OSTK Press release. Pretty much sums it all up in a way that even the most dim should be able to undersand. Let's see if any of the NY press corps can figure it out and cover it. My bet is, not...
UPDATE 7/22. Over the last few days, the hedge fund apologist media choagies have been in full roar. Nobody is discussing the massive fails that the FTD data shows to be fact, nor are they discussing the SEC's new data showing that the market maker exemption is largely responsible for many of the fails, i.e. it is being abused to manipulate, not hedge or make markets.
No, instead we have been treated to endless proclamations about how good shorts are for the market, how vital they are, and basically unlimited air and print time trying to confound legal short selling (where the seller borrows the stock ahead of selling it), and illegal market manipulation using delivery failures, where the sell order is placed with no borrow, and no intention of delivering.
This should surprise nobody who's been a regular reader of this blog.
I've gotten a lot of emails from people who are unclear on why I'm so disgusted with the market maker exemption from the SEC's emergency measure. Let me explain. The large prime brokers on Wall Street have facilitated and profited hugely from naked short selling. It couldn't take place without them acting as a cartel and cooperating with each others' fictional stock sales. They are a huge part of the problem. But now, they not only are protected by this emergency order from the very crime they perfected, they have gotten an exemption so they, and they alone, can continue to naked short. That's what the exemption means. Nobody can do it to us, but we need to do it to everyone else.
Now, consider some other wrinkles. DMA, for instance. What is that? A rave drug? No, I'm talking about Direct Market Access. That is a privilege afforded to large hedge funds by prime brokers, where they allow the hedge fund to have direct access to the executing broker, bypassing the checks and balances of the prime broker, but appearing to the executing broker as though the trade is coming directly from the prime. That effectively means that the largest hedge funds can behave as though they are the prime - including enjoying the exemptions the prime has. You see, there is nobody in the chain to question whether it is really the prime placing the massive sell orders, or whether it is some wealthy hedge fund with no desire nor intent to deliver anything. It looks the same to the executing broker with DMA. Yet another way to sidestep regulation.
Basically, the market makers have taken a measure that could have actually stopped some of the madness, and bullied or bribed the SEC into giving them the umpteenth hall pass, but with complete protection from everyone but themselves. I heard one rumor that one uber powerful Wall Street honcho told Cox that unless he granted an exemption, the markets wouldn't function for the 30 days of the rule's temporary duration - effectively causing a meltdown and depression. A guy in a position to stop the markets, no BS. That's called extortion, if true. Someone should pull the phone logs and see if that discussion happened. DOJ? But guess what, it won't ever take place. They get away with it again. This is just a rumor, but I have heard it from multiple sources now, and it has the ring of truth. Nothing would surprise me.
So consider the below document in light of this double standard, and in light of the fight going on to prevent the SEC from applying this measure to the broad market. Admittedly with the exemption it is 50% gutted, but it still has some teeth. So no way can the powers that be allow, say, an OSTK to be protected like a Goldman is. No, OSTK can be naked shorted into the ground, yet again, after coming off the SHO list (I've noticed that the bad guys flush all the fails into ex-clearing to reset the 5 day clock on unlimited NSS they can get away with if the stock is off the list - and sure enough, OSTK drops off the list, and then a massive bear raid takes place, complete with massive put option sales from the protected market makers), because they don't matter. They aren't part of the club. You see, there are the few banks that matter, because they run everything, and then there is everyone else. We are the food. They are the predators. It's just formal now, and obvious. Double standard? You bet. Basis in law for it? None. Allowing an exemption when the SEC KNOWS FOR A FACT the exemption is being abused? Absolutely. Can't stop the gravy train. Or they will stop the game of musical chairs, and the whole thing collapses.
And meanwhile, the NY media, CNBC, the WSJ, the usual pack of hedge fund apologists ignore the meltdown and hypocrisy, and continue to repeat the mantra that bad companies go down, shorts are good for bones and teeth, and some bubble-head on CNBC knows better than the head of the SEC how the markets work, and what endangers them.
This doesn't end well.
_____________________________
Normally, I don't publish whole letters on this blog. This time, however, I think it's appropriate. As tired and sickened as I am by the speed with which the SEC backtracked and created an exemption for market makers in its emergency order, and by its selection of the banks that have been the prime offenders and facilitators in the naked short selling game as those too important to NOT have special protection from the practice, I'm still amazed by the arrogance of the hedge funds, and their position that violating delivery requirements is a God-given right for them.
Here's the letter. My comments are in blue.
July 21, 2008
CPIC and MFA URGE SEC CHAIRMAN COX NOT TO EXTEND EMERGENCY ORDER ON SHORT SELLING
Associations Say Fundamentals Caused Difficult Markets - Not Short Selling
WASHINGTON, D.C., July 21, 2008 -- The Coalition of Private Investment
Companies (CPIC) and Managed Funds Association (MFA) today sent a letter to SEC Chairman Christopher Cox urging the Commission to not extend the emergency order on short selling beyond the announced expiration date of 11:59 pm on July 29, 2008, or beyond the current list of designated
securities.
James S. Chanos, CPIC Chairman said, "We respectfully urge the Commission not to extend this Order in duration or scope. Such action would severely burden short selling activity, which the SEC itself repeatedly has acknowledged plays a vital role in the stability of securities markets.
No, Jim, sweetie, it actually wouldn't burden legitimate short selling where the seller borrowed the stock, as common sense and the rules require. It only places a burden on illegal naked short selling, where the seller has no intention of delivering the stock sold, thus any locate gotten is specious and designed to skirt timely delivery requirements.
And as to this oft-repeated claim that short selling plays a vital role in the stability of the securities market, where's the proof to support that claim? I mean, I know it behooves your short selling buddies to drive that claim home every chance you get, but where's the data showing that the markets can't exist without them? Others do. They function just fine, as the NCANS comment letter to the Reg SHO amendments from a year ago documents handily. So that claim is really nothing more than propaganda, designed to advance the interests of short sellers, isn't it? If not, prove it. Trot out the studies that prove the claim, or stop making it. Bet you can't. Because you can't explain away the markets where it isn't allowed, and where they function just fine. Bummer, that, huh? Oh, I know, just ignore that niggling detail, shall we? As to the SEC's repetition, that means less than nothing, as they repeated that SHO was working repeatedly, and that was shown to be a complete fabrication. Once a liar, always a liar, and the burden of proof shifts to the liar at that point. So prove it.
And why, precisely, will legal, legitimate short selling be burdened unfairly by the seller having to borrow the shares before he sells? Doesn't the buyer of those shares have to have the money at the time he buys? Or should we do the inverse for longs, and create phantom buying, where the buyer doesn't have to have any cash when he buys, but just has to claim his uncle Jim told him he could probably get the money to lend him? That's the equivalent. Fair is fair. Why should short sellers get that right, and not buyers?
"Restrictions on short sales distort the fundamentals that drive market prices and are, in the long run, counter-productive because they remove liquidity and healthy skepticism from the marketplace."
Again, prove it. And how does placing a borrow requirement on short sales remove healthy skepticism from the marketplace? Isn't it true that all it removes is the ability of arrogant super-rich criminal parasites to defraud the system by counterfeiting shares in a virtually unrestricted manner? Isn't the "liquidity" that is bandied about in this sense only the liquidity that is produced by the counterfeiting presses running 24/7? Why is that sort of liquidity good? Why is creating multiples of the legitimately-authorized and registered number of shares a good sort of liquidity, other than for brokers who make money off each trade, and criminal predators who use this ability to defraud and dilute, destroying the fair market for issues?
Richard H. Baker, MFA President and CEO, said, "While we recognize that the financial sector is undergoing an extraordinarily difficult period, we believe that these difficulties are the result of poor fundamental conditions and not a mysterious conspiracy or, more to the point, the inadequacy of current rules related to short selling.
Riiiiight. But that is your belief, not any sort of actual theory based upon evidence, right? And that belief is mainly based upon the input of many guys who are strongly suspected of being the largest criminal abusers and market manipulators, correct? So the "blame the victim" rap you use every time this cartel takes down a victim really is just an excuse, not an explanation, right? Just as, "I don't know how that crack got in my pocket" or "I was just holding it for a friend" is an excuse used by drug dealers, but shouldn't be confused with anything supported by data?
As to mysterious conspiracies, no mystery about it. The prime brokers have allowed hedge funds like your members to sell stock they don't own and haven't borrowed, in order to destroy companies. They do it for profit. See? No mystery at all. None. Money drives the behavior, and they like making hundreds of billions per year, rather than having to compete fairly, and be lucky to generate 12% returns. The current rules are a sham, created and castrated by attorneys at the SEC who all wind up working for Wall Street lawfirms who pay them gazillions for their supplicant behavior while at the SEC. Again, no mystery, money drives it.
Isn't it just another replay of the Pecora hearings, where the then chairman of the NYSE warned that ANY regulation would destroy the "perfect" system then in place? You know, Dick Whitney, who shortly thereafter was convicted of fraud and embezzlement, and did five to ten in Sing Sing? Aren't cries against sensible regulation here exactly the same sort of self-serving drivel? What has changed in 70+ years? Exactly, what has changed? Enormously wealthy scumbags will do anything for more money, and while pretending to be honorable, will break every law and rule imaginable if allowed. The Pecora hearings proved that. It isn't theory. So what's changed about human nature in those few generations? Would "nothing" be a pretty good descriptor?
The Commission's action here stands in stark contrast to its actions to protect retail investors from abusive short selling practices through the adoption of Regulation SHO, which was subject to extensive notice and comment. Short selling is a legitimate and valuable trading strategy as well as a vital component of providing price discovery and promoting efficient markets."
Yeah, Reg SHO, with its mountain of loopholes carefully crafted by your members, and included as part of that offensive and impotent rule, is certainly your kind of regulation, no? It doesn't work. There are more fails than ever, in dollars and in numbers. Why cite a rule that didn't work as an example of what you want the SEC to do? I mean, ignore for a moment that the problem is now bigger than ever before, and threatens to collapse the entire system. You stance is, "Why can't we just keep using the tool that doesn't work, rather than something that stands a chance?" Pardon me if I'm not awed at your powers of reasoning. You're both either incredibly dim, or incredibly crooked. Choose whichever shoe best fits, in your view.
Basically, the SEC repeated over and over again that naked short selling isn't a big problem, and really is just an issue at the margins. A fringe issue, a technical thing hardly worth worrying about. So if that's true, why do you care? If everyone is basically behaving, and borrowing and delivering, why is any such rule a threat? Why will it impact the market so profoundly? Why do market makers need an exception to the rule if it's such a trivial issue? The answer is that it isn't small. That was also a falsehood. It is now much of the market. Your parasitic membership has managed to create a multi-trillion dollar industry, in many cases by draining that money from the market, and leaving nothing to show for it - no delivered shares, nothing.
Every other business on the planet, it's called fraud. Here, the fraudsters write comment letters and sway legislation, and run the regulators and elected officials. "Greed is good" has become "Fraud is good." And now, because the contra-parties to the millions and millions and millions of fraudulently created markers floating in the system couldn't deliver on their commitment if they wanted to, we face the equivalent of financial nuclear winter. But you want everyone to just let the band play on.
Because having to deliver what you sold would crimp a really good business model - counterfeiting, theft and fraud.
The prospect of actually having to do what good short sellers, or rather legal ones, actually do, which is borrow the shares and then deliver them, terrifies you, because your members have gotten wildly rich by not complying with any fair market rules. And now, having to deliver on just these 17 stocks is going to cost them a fortune. If you actually extend it to the whole market, which absolutely must happen to avoid financial Armageddon, they will have a much more difficult time making a fortune. It's way easier if you can just steal the money. Having to work for it sucks.
The CPIC and MFA letter is posted on MFA's web site at www.managedfunds.org
<http://www.managedfunds.org/> .
CPIC is a coalition of private investment companies whose members and
associates are diverse in both size and investment strategies managing or
advising an aggregate of over $100 billion in assets."
=============
The real question now is whether these arrogant parasites are going to be allowed to confuse illegal naked short selling, i.e. failing to deliver the share sold at T+3, with legal short selling, which is where borrowed shares are delivered. This letter isn't an appeal for legal short selling, it is an appeal for confusing illegal delivery failure as a trading strategy, with legitimate short selling. The question is whether there is anyone these days who is so stupid that they don't know the difference. Obviously, Chanos and Baker believe we are all idiots, and that we can't make the distinction. This is particularly unctuous now, as even the mainstream understands it. For crying out loud, even Cramer has seen the writing on the wall and is pretending that he has been part of Patrick's movement for years.
Best of luck with that, guys. Party's over. Or if not, it will be for good shortly after you are all allowed to continue what has brought us to the edge of the precipice.
----
wake up America
---
4kids
all jmo
I thought it was from january
will check later, have to leave
Those quote's are from June 2008.
BLDV is alive and well I believe.
good morning all
SP, I think we could follow up this hint and see if its true.
I am wrong or was this post from this guy
Quote from: chris burns on January 13, 2008, 04:39:51 pm
I do believe the FBI will now get involved.
Looking for a balanced response.
What did you think of the blogger Stocks and I found that talked about "working for Blue Diamond Ventures with A bio plant in Houston, selling Ethanol to South America?
The Goat and Jatropha board was the 7th most posted board on I-Hub today.
As long as the goats generate that much interest, the born again bashers will continue to post and annoy the goat shareholders.
have a great weekend,
Woof
And my Kitty... hehehehe
Isn't she Cute????
tex that was the best discription I have seen until now. hehehheh
hey goodlife,
see it worked and the monkey is on... hehehhe
Already done...
I even called my friend at the SEC. He is in the internet crimes division.
They will be receiving a very nice note from both agencies.
Cheers,
ThegoodlifeGeo
"Mess with the Cat and you get Scratched!"
geo, you have just got to turn them in. lol
HowardH,
Went on the biofuel scam board. Complete with the FBI seal. We need to create our own goat/jatropha coat of arms.
What can I say, some people are more interested in being right than in investing in stocks. Like born-again bashers.
I bet those jokers dont own any stocks. Much more interested in saving us from ourselves.
Woof
a great weekend to all
and heading for another interesting week soon.. its getting very very exiting how this b-thing will work out..
it is so clear what is going on over there...
Um, someone over there obviously does not know it is a crime to use those official seals of US Government Agencies for any private purpose.
At the bottom of this page:
http://www.fbi.gov/ipr/
"A last word to the wise: Unauthorized use of the FBI seal, name, and initials are subject to prosecution under Federal Criminal law, including Sections 701, 709, and 712 of Title 18 of the United States Code."
There is a similar one for the other one.
Cheers,
ThegoodlifeGeo
i better leave before i get banned again on that other board..have a great weekend guys/gals/dogs (u know who u are)
yep its the basher playbook and they use it to a tee!
that is my rule over on jr. mining lol
this part alone gives them away
---
Lesson 3: BASHERS POST MANY TIMES A DAY. They try to wear you out. They comment on everything, every other post, and can answer every question. THEY KNOW IT ALL! There is no positive comment they won't Bash. They try to control the board. True longs may have to confront the Bashers or they will appear to the newbies as being the people with all the information. This is best accomplished by posting positive, well researched data on the company, repetitively, while trying hard not to engage the Bashers in direct repartee. REMEMBER - LONGS... RESIST USING THE BASHERS ALIAS!
---
i do find it amusing that some can wrap
their grey matter around *paid promoters*
but the idea of *folks* making money by
doing the opposite ... eludes them ..
simpletons
---
4kids
all jmo
Amazing what some people will do to make money...
OK, Beer #1 gone... Beer #2 halfway gone...
Pretty soon I may start violating Bet's rule about no drunken posting... lol...
Cheers!
ThegoodlifeGeo
I love more dogs and try to avoid flies and cats and other snakes..
how do you feel about cats
hey Piecemaker,
I really hate this name, because I love dogs... its an offense for every dog on this planet... lol
have a great weekend
Hi Everyone,
It's Ihub happy hour so I can post. And just wanted to say I enjoy the banter here. Nice to see a relaxed side of people, especially in these "dog days" of summer. Good weekend all.
Pmker
hey goodlife,
relax and give your car a big hugh....
wish you and all others a great weekend too
Go, I want to be one of those dogs in your bottom picture...
But I want a Strawberry Margarita in my hand too....
16 hours/day for the last 3 days of work and I am dead now. I drove home this morning somewhere around 3:45am and do not remember opening the garage door, but my car is in there so I guess I'm glad my car knows the way home... lol... At least it is finally Friday...
C'mon Sarissa, or the "B" company, or Quest, or FRGY, or one of you others!!! You Have to take off now so I can stop all the Work Stuff and go sit on the beach for a while!!!
Cheers all and have a nice weekend,
ThegoodlifeGeo
that is a real good one
thanks for posting it
I tried to get a license but was turned down by the SEC.
It seems there are a limit on the quantity of licenses to print fake stock shares and most go to relatives of SEC employees.
Ha ha. Well I've purchased a few shady company shares myself.
Gambling on the pennies is a lot more fun than gambling in Vegas. You have better odds of making money in the pennies than in Vegas.
Take SRSR, now that's a winner.
A funny letter-
May 20, 2008
sub.: Permit for selling self printed stock shares of different companies.
Dear SEC authority,
My Name is Mugabe Abu. I am Nigerian investor and I am very interested for getting the permit for selling self printed shares of different, on the Wall Street noticed, companies.
Since this practice to sell something what you do not have is legal in US I would like also to participate in this program.
We Nigerians know very well this practice of selling something what we do not have, but we did not make it with the securities, so far.
Since printing of US dollars is illegal, I will be really interested for printing and selling fake securities as many make it in US. You call it very nice naked (fake) shorts. Your explanation of this procedure is very nice and I appreciate it very much and I am your admirer.
I see that some people who get permit from you have printed so many fake securities that such company like CALM has even over 100% shorts. Others like DNDN, CORS, CCRT (only few samples) are also extremely diluted. I would like to help you to make it even more. I see still big opportunity to print more fake shares of big companies.
It is almost so easy business like printing fake US dollars but I see, in opposite to printing fake dollar, this business is full legal and you can sell these fake securities for anybody in the world and you do not need to ask the applicable company, to print their shares
It is excellent business
I always believed on your ideas of collecting money from all the world and I would be happy to participate in this huge idea of printing fake shares.
Therefore, please send me the application form for this permit and also needed information how I can start this easy business.
Please inform me if I will need to contribute any amount to get this permit and whom shall I forward this money.
I can also promise you that I will donate some earned money for your agency.
Yours truly,
Mugabe Abu
Good Morning ladies and Gentlemen and those that think they are.
As we creep into the week end and you notice the beer cooler is empty, don't panic. Hop in you car and drive over to the boozery and load up so you can get loaded later.
Today I see nothing exciting happening except for the fact that I woke up today and I'm still here. With a bit of luck I can duplicate that event for many days to come.
While the government gets their act together and decide how they will continue to bankrupt the country we can at least do something positive while we wait on their decision. Get drunk and you won't care.
New rule.US SEC looks to expand short rule to entire market Reuters, Thursday July 24 2008 (Adds comment from Rep. Bachus, paragraph 12)
By Karey Wutkowski and Rachelle Younglai
WASHINGTON, July 24 (Reuters) - The top U.S. securities regulator remains steadfast in a plan to broaden an emergency rule to curb abusive short selling despite opposition from the hedge fund industry and other short sellers.
U.S. Securities and Exchange Commission Chairman Christopher Cox told lawmakers on Thursday the agency would soon propose expanding the rule covering the shares of 19 major financial firms to the entire market.
"We have immediately pivoted to a broader rule making ... so we can extend this kind of procedural protection to the entire market," SEC Chairman Christopher Cox told a House Financial Services Committee hearing.
"I think very soon we will be in a position to issue a proposal on that," he said. The SEC could consider its next steps at the end of July or beginning of August.
The SEC is also considering other remedies to short selling abuses, such as requiring the reporting of substantial short positions, Cox told reporters after the hearing.
Britain's financial watchdog, the Financial Services Authority, has also unveiled plans to deal with short sellers and introduced rules in June that would force investors to reveal significant short positions in companies selling new shares.
Cox said the public disclosure of significant short interests could be similar to, but not the same as, the SEC's current disclosure requirements for long positions.
"The concern on the short side is related in part to our ability to conduct enforcement," he said.
Cox said it would be "premature to provide specific contours of what reporting would look like" for short positions.
The temporary rule requires investors to borrow stock before executing a short sale in 17 major Wall Street firms such as Citigroup and Lehman Brothers as well as mortgage finance giants Freddie Mac and Fannie Mae.
The emergency rule, which started on Monday, can only last a total of 30 days but the American Bankers Association and former SEC officials have been urging the investor protection agency to extend and expand the rule.
Alabama Rep. Spencer Bachus, the top Republican on the House Financial Services panel, has sent a letter to Cox urging him to expand the order to include financial firms with a market capitalization of at least $750 million or those that have at least a 5 percent short interest.
Groups representing short sellers have urged the SEC not to extend the emergency order past July 29, nor beyond the current list of companies.
The SEC has said it is not looking to outlaw short selling, a legitimate form of investing that can keep stocks from becoming overvalued.
Short sellers arrange to borrow shares and sell them in hopes of making a profit when the price drops. When an investor does not pre-borrow the shares before shorting the stock, it's called naked short selling, which is illegal if done intentionally.
The SEC's emergency rule has exempted market makers from the pre-borrow requirement so they can continue to facilitate trading in certain stocks. But market makers are still required to deliver securities by the settlement date.
At the hearing, lawmakers asked Cox why the agency did not reinstate the so-called tick-test rule on short sales, which was implemented after the 1929 stock market crash. Cox reiterated that studies have shown that the tick test is no longer effective.
In June 2007, the SEC repealed the rule, which only allowed short sales when the last sale price was higher than the previous price.
Cox said the idea of using a price test or some sort of circuit breaker to regulate manipulative short selling is a "subject currently under consideration by the commission staff."
Boy I really like what I am seeing here. Good luck with this shorty. =))
Why not GoatKini's? It would be in keeping with BLDV's green energy approach and we wouldn't be wasting any part of the goat.
Perhaps the goat poop can be mixed in with the jatropha nut and used as a biofuel. hee hee. Doggone needs to hear this.
I need to be careful, as this might be interpreted as bashing. But, it's the end of my work day here on the Left Coast, and I'm ready for several beers and a big fat smooch from my dawg.
yeah
its not easy.
but big brother is watching us.....
sad but true
OOPS....
Sorry, I did it again...
Will not happen anymore...
But hey, we are suggesting some new products...
Every little bit helps...
Sorry!
ThegoodlifeGeo
LOL............
Maybe a new Fashion Trend...
"GoatKini's" By BLDV...
I have a better idea though, I have an Alpaca farm behind me. They make all kinds of cold weather stuff.
I'll get everyone a sweater...
Cheers!
ThegoodlifeGeo
I'm going to make my 20 bagger out of goat skins! :)
doberman and all
could we pease post without using the BXXX name... I don't want to get this thread deleted too.
thanks guys
yes
I would be the long blue... within minutes...
all what is below 25 celsius is deep winter for me.. lol
goodlifegeo I need to clarify that the goat skin would be obtained from our investments in BLDV. We can also make goat skin coats, if a bikini is not your thing.
That would be one use of the BLDV goats that so may are concerned about.
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